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FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023
NYSCEF DOC. NO. 868 RECEIVED NYSCEF: 03/20/2024
EXHIBIT A
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NASSAU
PRESENT: HON. LISA A. CAIRO, J.S.C.
X TRIAL/IAS PART 25
PEOPLE OF THE STATE OF NEW YORK by
LETITIA JAMES, ATTORNEY GENERAL OF TIIE DECISION AND ORDER
STATE OF NEW YORK, ON PETITION
Petitioner, INDEX No. 617709/2022
-against- Motion Seq. Nos. 001, 021
COLD SPRING ACQUISITION, LLC D/B/A COLD
SPRING HILLS CENTER FOR NURSING &
REHABILITATION, COLD SPRING REALTY
ACQUISITION, LLC, VENTURA SERVICES, I.LC D/B/A
PHILOSOPHY CARE CENTERS, GRAPH MGA, LLC,
GRAPH MANAGEMENT, LLC, GRAPH INSURANCE
COMPANY A RISK RETENTION GROUP, LLC,
HIGIIVIEW 1VIANAGEMFNT INC, COMPREHENSIVE
CARE SOLUTIONS, LLC, PHILIPSON FAMILY, LLC,
LIFESTAR FAMILY HOLDINGS, LLC, ROSS CSH
HOLDINGS, LLC, ROSEWELL ASSOCIATES, LLC,
B&L CONSULTING; LLC, ZBL MANAGEMENT, LLC
BENT PHILIPSON, AVI PHILIPSON, ESTATE OF
DEBORAH PHILIPSON, JOEL LEIFER, LEAH
FRIEDMAN, ROCHEL DAVID, ESTHER FARKOVITS,
BENJAMIN LANDA, DAVID ZAIILER, CIIAYA
ZAIIL ER, CIIAIM. ZAIILER, JACOB ZAIILER,
CHESKEL BERKOWITZ, and .TOFL LUPNICK,
Respondents.
The following papers were read on this motion DOCS NUMI3EREl7
Petition, Affidavits, Affirmations, Exhibits; Memos 1-114, 682
Answers and Opposition Papers 502-513, 514-529,
530-535, 536-550,
551-557, 558-566,
567-575, 576-587,
588-597, 59$=605,
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614, 606-612, 633-
(48, 777-783
Reply Papers. 736-739
(MS 21) Notice of Motion, Affidavits, Affirmations, Exhibits. Memos.. . 61.3, 615 -632
Opposition Papers 736-739
The Attorney General of the State of New York on behalf of the State commenced this
special proceeding pursuant to New York Executive Law § 63(12) by verified Petition on
December 16, 2022, against Cold Spring Acquisition, LLC d/b/a Cold Spring Hills Center for
Nursing & Rehabilitation (CSH) and Cold Spring Hills Realty Acquisition LLC (Cold Spring
Realty), as well as their respective owners and allegedly related parties and entities (MS #1).
Respondents' motions to dismiss were largely denied by Decision and Order dated June 26, 2023.
Answers and oppositions to the Petition were filed and oral argument was taken on the Petition on
December 4 through 8, 2023. Respondents Joel Leifer and Rosewell Associates l_LC have
separately moved for summary determination on the pleadings (MS #21).
BACKGROUND
In 2014, Respondent CSI- submitted a Certificate of Need ("CON") application to the.
Department of Health ("DOH") requesting approval to purchase and operate an existing residential
health care facility located in Woodbury, New. York (the "Facility"). As part of this application
process, CSH was required to provide information about the proposed owners and operators of the
Facility; The information provided included disclosure of the related party entities, specifically
familial relationships among members of CSH and Cold Spring Realty, the proposed purchaser of
the real property upon which the Facility is located. In response to the CON, the DOH prepared
an Executive Summary dated February 11, 2016, recommending contingent approval of the CON.
The Executive Summary refers to the relationship between CSH and. Cold Spring Realty, "in that
the entities have several members in corninon." The Executive Summary also includes a list of.
other nursing home facilities that members of both CSI-1 and. Cold Spring Realty were involved in
at the time the CON was submitted.
Managing members of' CS' I both at the time the CON was approved and presently are Joel
Leifer and Avi Philipson, who is the son of long-time nursing home operator Bent Philipson. Avi
Philipson was a student living in Israel with no prior work experience when the CON was
submitted and maintained an ownership interest in one other New York nursing home facility.
Other members of CSH are the Estate of Deborah Philipson, Esther Farkovits (daughter of
Benjamin Landa), Rochelle David (daughter of David Zahler), and Leah Friedman (daughter of
David Zahler). The members of Cold Spring Realty . are the Philipson Family LLC, Benjamin
Landa, Lifestar Family Holdings (owned by members of the Zahler Family), and Cheskel
Berkowitz.
According to the Executive Summary, Ms. Farkovits was unemployed and living overseas
at the time the CON was submitted. She maintained an ownership interest in nine other nursing
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home facilities under the jurisdiction of the Department of I Iealth. Both Roehel David and Leah
Friedman represented over two decades of employment in human resources at Confidence.
Management Systems ("Confidence") when the CON was submitted. although later deposition
testimony discredited those statements. Specifically, David testified during her June 2022
investigatory deposition that she had not worked at Confidence since about 2004, making her
length of employment 13 years rather than the 25 years she sets forth in the CON. Similarly,
Friedman testified at her deposition that she had not worked at Confidence since 2004 or 2005
while stating in the. CON that she was employed by Confidence in 2016. Neither Friedman or
David explain these discrepancies in their respective affirmations in opposition to the Petition
(NYSCEF Does. 527 and 528). At the time the CON was submitted, however, both David and
Friedman had ownership interests in three other nursing home facilities.
The Attorney General asks the court to find that CSI-I's CON application presented a
misleading picture to the DOH. However, the CON application. in many regards, sets forth
accurate and complete information concerning the members of CS and Cold Spring Realty along
with the proposed ownership structure of the Fad lity and the real property.
Respondents argue that the Attorney General is not satisfied with certain requirements of
private nursing homes in New York. Rather than address these concerns with the. Legislature,
which Respondents argue would be the proper mechanism, the Attorney General is looking for the
court to make a ruling that will in effect drastically change the way private nursing homes are
approved and regulated throughout the State,
'I'lte allegations in the. Petition primarily concern (1) an alleged fraudulent Lease.
Agreement between CSH and Cold Spring Realty, (2) an alleged fraudulent Promissory Note
executed by Cold Spring Realty in favor of Lending Partners, an alleged corporate alter ego of
Cold Spring Realty, and (3) various payments made by CSH to other named Respondents as related
entities, all resulting in a lack of care for residents at the Facility caused by Respondents' misuse
of Facility funds.
The Petitioner argues that the various Respondents put personal greed above resident care.
The court is now faced with determining whether this alleged personal greed constitutes a violation.
of Executive. Law § 63(12). As set forth herein, based upon the underlying Petition, together with
all Respondents' Answers, the parties' various Affidavits, .I sxhibits. and Memoranda of. Law and
the weeklong oral argument held before the Court, the Attorney General has properly plead and
proven certain. but not all, of the Causes of Action in the Petition.
DISCUSSION
Pursuant to NY Executive Law § 63(12), the Attorney General is permitted to bring a
special. proceeding against. a respondent seeking injunctive relief, restitution, and damages. .A
special proceeding is determined by the court using the same criteria applied to a motion for
summary judgement. (State v. Northern Leasing Sys., 193 AD3d 67, 73 [1st. Dept 2 021 1; State v.
Telehublink Corp., 301 AD2d 1006; 1007. [3d Dept 20031 ['`A special proceeding is governed by
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the same standards that apply to a motion for summary judgment.'. ] 1 ). The Attorney General must.
establish that there is no issue of fact as to its allegations, and thereafter the burden shills to the
Respondent who may demonstrate the existence of issues of fact requiring a trial. (CPI.R 409(d);
See Telehublink, 301AD2d at 1007). Should the Petitioner fail to meet its prima facie burden, the
court need not even consider Respondents' arguments in opposition.
Executive. Law § 63 (12)
Executive Law § 63(12) provides in relevant part:.
-Whenever any person shall engage in repeated fraudulent or illegal
acts or otherwise demonstrate persistent fraud or illegality in the
carrying on, conducting or transaction of business, the attorney
general may apply, in the name of the people of the State of New
York, to the supreme court of the state of New York, on notice of
five days, for an order enjoining the continuance of such business
activity or of any fraudulent or illegal acts land I directing restitution
and damages ... and the court may award the relief applied for or
so much thereof as it may deem proper."
As discussed in the court's prior orders, this provision is a function of the State's ability to
regulate "businesses within its borders in the interest of securing an honest marketplace." (State
v. Coventry First LLC, 52 AD3d 345 [1st Dept 2008]). "A special proceeding, as authorized by
Executive Law § 63(12) is intended as an expeditious means for the Attorney-General to prevent
further injury and seek relief for the victim of business fraud." (State v. Apple Health & Sports
Clubs, 206 AD2d 266, 268 [1st Dept 1994]). Continuing acts need not be alleged provided they
were "repeated" in nature and fall within the statute of limitations. (Executive Law § 63 (12)).
"Fraud" is broadly defined by the statute as "any device, scheme or artifice to defraud and
any deception, misrepresentation, concealment, suppression, false pretense, false promise or
unconscionable contractual provisions." (Executive I .,aw § 63(12)), This definition goes beyond
common law fraud and the specific elements of a common-law fraud claim need not be asserted
under an Executive Law § 63 (12) cause of action. (State ti. Trump Entrepreneur Initiative, LL C,,
137 AD3d 409, 416-417 [1st Dept 2016] [citing Coventry Fit st, 52 AD3d at 3460. Rather, the
question under the Executive. Law is. "whether the targeted act has the capacity or tendency to
.
deceive or creates an atmosphere conducive of fraud." (Northern Leasing Sys, 193 AD3 d at 75
[quotations omitted1). Thus, § 63 (12) "defines the fraudulent conduct that it prohibits, authorizes
the Attorney General to commence an action or proceeding to foreclose that conduct, and speci ties
the relief, including equitable relief,. that the Attorney General may seek." (Ti ump Entrepreneur
Initiative, 137 AD3d at 417).
1 Cases formally. captioned The People of the State of New York by [Attorney General) v. Respondent are .
abbreviated throughout this decision as State v. Respondent.
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As explained above, the allegations set forth in the Petition all relate to the Attorney
General's overarching argument that from 2016 through 2021, . CrySII transferred $42.4 million
dollars to Cold Spring Realty and other associated parties. From this amount, the Attorney General.
alleges that $22.6 million was illegally converted rather than being properly 'used for resident care.
Instead, Respondents participated in the three above-identified fraudulent schemes resulting in
personal profit. The Petition asserts seven causes of action as follows:
The First Cause of Action is asserted pursuant to the repeated and persistent fraud
clauses of Executive Law § 63(12) related to "services purportedly rendered by [CSH] that did not.
conform with applicable laws and regulation, including refraining from engaging in unacceptable
practices in violation of 18 NYCRR § 515.2."
The Second Cause of Action is asserted pursuant to the repeated and persistent
fraud clauses of Executive Law § 63 (12) related to real property transactions, including binding
CSH to an exorbitant lease agreement and binding Cold Spring Realty to a $16 million promissory
note subject to 13% interest.
- The. Third Cause of Action is asserted pursuant to the repeated and persistent fraud
clauses. of Executive Law § 63(12) related to "withdrawals and transfers from [CSI I] in cxcess o f
the disclosure thresholds as set forth in PIII., § 2808(5)(c)," ' [p]reparing, filing, and/or causing to
be filed with DOH false annual financial and statistical reports that failed to properly disclosure
related parties and submit required financial statements, pursuant to 10 NYCRR : § 86-2.2," and.
aria filing,and/or causing to by filed with DO11 false and/or misleading documents.
"[p]reparing,
concerning an application for a CON, on behalf of [CSII]°` as well as false and misleading annual
billing certifications.
The Fourth Cause of Action is asserted pursuant to the repeated and persistent
illegality clauses of Executive Law § 63 (12) related to alleged failures to comply with legal.
obligations to provide residents the care required under specified New York. and Federal nursing
home regulations.
- The Fifth Cause of Action is asserted pursuant to the repeated and persistent.
illegality clause of Executive Law § 63(12) related to violation of controlling statutes and
regulations governing resident care and the collection of Medicare funds.
The. Sixth Cause of Action is asserted pursuant to Executive Law § 63-c for the
alleged misappropriation of funds derived from the Medicaid and Medicare Programs.
- The Seventh Cause of Action is asserted pursuant to the common law doctrine of
unjust enrichment for "funds unlawfully received from the Medicaid and. Medicare Programs:"
First Cause of Action Pursuant to Executive Law x.63 (12)
Petitioner claims that all Respondents other than Graph MOA, LLC, Graph Management,
LLC, Graph Insurance Company A Risk Retention Group (collectively the "Graph Respondents"
or "Graph Entities") and Comprehensive Care Solutions, 1,1.,C ("Comprehensive"), were
responsible for the conversion of millions in Medicaid and Medicate funds received by CS11. As
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stated herein, the Attorney General claims that these funds were paid to the Respondents for
services that were not performed ratifier than being used for resident care and adequate staffing.
The Petitioner also argues that the Respondents mislead the D011 during the CON process
regarding the true managing parties, the experience of those taking an ownership interest in the
Facility, and the operations of the Facility. However, the Petitioner's repeated arguments
concerning a lack of experience in nursing home administration by various members of CSH is
somewhat perplexing given the DOH's approval of these individuals involvement after a two-year
application process and additional approval of their ownership of other facilities. In fact,
Respondent Farkovits was involved in six of the other CON applications that were contingently
approved by the Public Health and Health Planning Council (PHIIPC) when the underlying CON
was contingently approved at the January 28, 2016. meeting. Respondem Avi Philipson was
involved in two other contingently approved CON' s. As noted above. both David and Friedman
had been approved owners of three other nursing home facilities at the time that the subject CON
was contingently approved. The court finds no fraud in this regard.
With regard to management agreements, the court notes that although during the initial
CON application process, it was presented that "there will be no consulting and administrative.
services agreements with SentosaCare or any other entity contemplated for the facility after
transfer of ownership" (NYSCEF Doc. 533, Feb. 11, 2016 Executive Summary at 8), by November
19, 2016, the DOH had approved the addition of Cold Spring Hills Center for Nursing and
Rehabilitation to the agreement to provide consulting services by SeritosaCare (NYSCEF Doe.
300). The court does not perceive that material information concerning management of the Facility
was withheld from the DOEI such that the Respondents' actions constituted a "repeated and
persistent fraud.
Further, each of the alleged related entities to have done business with CSf I asserts that the
amounts paid were reasonable payment for value received. Although the Petition together with
the accompanying affidavits go into great detail about the amounts transferred to each related
party, the Attorney General offers nothing more than speculation about whether the payments
exceeded fair value. By contrast, the Respondents each present affidavits detailing the payments
and the goods and services provided. In reply, the Attorney General fails to offer any specific.
valuations or evidence establishing overpayment for particular services. The fact that the
payments were made does not establish that they were in excess of the value received. As it is, in
the-first instance, the Attorney General's burden to establish a prima facie case, the court finds that
Petitioner has failed- to make a prima facie showing under the first cause of action.
Second Cause of Action Pursuant to Executive Law §63(12)
Petitioner claims that all Respondents other than Ventura Services. LLC d/b/a Philosophy
Care Center ("Ventura"), Graph Respondents, Comprehensive and Roscwell Associates 1_LC
("Rosewell"), violated Executive Law §63(12) by entering into the Lease Agreement and
Promissory Note. Additionally. it is alleged that. the Respondents engaged in unacceptable
practices in violation of 18 NYCRR § 515.2.
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The Lease Agreement
One of the primary fraudulent schemes asserted by the Attorney General relates to the
Lease Agreement between Cold Spring Realty and CSII. The Petition alleges that CSH was
charged exorbitant rent by Cóld Spring Realty and CSII paid over $15 million to the owners of
Cold Spring Realty between 2016 and 2021, exclusive of the $33 million debt service payments.
However, the DOH Executive Summary acknowledges that a draft lease was submitted
setting forth a 30-year term with annual rent equal to the sum of the Cold Spring Realty's debt.
service on the real property mortgage (assessed at. $3,899,477 for year one) plus $4 million. The
first year's rent was disclosed as $7,899,477 or $658,290 per month. The Executive Summary
further references an affidavit submitted on behalf of CSH acknowledging that the landlord and
tenant entities include several members in common. The DOH contingently approved the CON.
with this disclosed lease information.
Cold Spring Realty argues that the familial relationships among members of Realty and.
CSH were disclosed to DOH. Realty points out that the Attorney Genera] has failed to advance
evidence. establishing that the lease payments were excessive, only that they were in the top 25%
for the region. Thus, Realty argues that the Lease Agreement, approved by DOH, does not
establish any claim under Executive Law § 63(12) in that there is no repeated fraudulent acts or
illegality.
In support of its argument, Cold Spring Realty submits the affidavit of Helena Bernstein,
Chief Financial Officer of Respondent Ventura, who provides information concerning the actual
lease payments made by CSII to Realty for the period of 2016-2023. According to Ms. Bernstein,
detailed information about the annual lease payments was also disclosed in the required annual
reports prepared on behalf of CSH and submitted to DOH. The annual reports submitted between
2017 and 2022 indicate that the "anticipated future annual rental payments" were between $6.7
million dollars and $9.9 million dollars (the 2017 report reflects $9.9 million; 2018 report reflects
$8.8 million; 2019 reflects $8.8 million; 2020 reflects $6.7 million and 2021 reflects $6.7 million).
For its part, CSII argues that the I7t]II approved the Lease. Agreement with indefinite debt
service built in as a portion of the rent. Further, CSII explains that a non-arms-length lease is
common in the nursing home industry as evidenced by eleven of the fourteen other CON
applications presented to DOH when CSII's application was considered by the PHHPC on January
28, 2016. Upon a review of the record, it is apparent that the DOH regularly entertained and
approved :CON'.s involving landlord entities and operator entities comprised of common or related
owners.
The court finds that the Petitioner has failed to adequately establish by competent proof
that the Lease Agreement is a product of fraud. As detailed herein, the Lease Agreement was
provided to the DOH as part of CSH's CON application. The Executive Summary, prepared by
the DOH, explicitly references the financial terms of the Lease Agreement and the existence of
related parties among the landlord, Cold Spring Realty, and the tenant, CSII. The fact that the
landlord may have had control of the lease negotiations does not negate the DOH's approval of
the Lease Agreement. CSH's decisions related to the Lease Agreement are not for the court's
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determination given the ;DOT-I's approval. To that end, Petitioner has failed to set forth in what
ways the approved Lease Agreement establishes a fraud. The terms of the Lease Agreement, as
provided to the DOH and thereafter approved, is not a ``fraud but rather a real estate transaction
between disclosed related parties. Indeed, the Executive Summary prepared by DOH states in
part, "Cold Spring Realty Acquisition, LLC as landlord, and Cold Spring Acquisition, LLC, as
tenant, have entered into a proposed lease agreement for site control of the facility. There is a
relationship between Cold Spring Realty Acquisition, LLC and Cold Spring Acquisition, LLC that
is being acknowledged in this application, in that the individuals have ownership interests in both
the operating entity and the real estate entity." 'the court again notes that it is undisputed that it is
not unusual for the DOl-1 to approve CON's involving real property owned by entities that are
related to the proposed nursing facility operator entity.
The Promissory Note to Lending Partners
The alleged fraudulent scheme under the Second Cause of Action concerns.. a Promissory
Note wherein Lending Partners, an alleged corporate alter ego of Cold. Spring. Realty, loaned Cold
Spring Realty $16 million at 13% interest. `the crux of the argument in this regard is that CSI I's
CON. application .referred to the real property purchase being satisfied with $13.5 million of Cold
Spring Realty member equity and a $54 million dollar loan with a 30-year term at 6% interest,
with any shortfall to be made up by additional member equity. in November of 2015, the DOH
advised Andrew Blatt on behalf of CSH that disproportionate equity provided to both the operating
entity and real property entity "should be provided interest free." (NYSCEIF Doc. 29). In
connection with the promise of equity contributions, both Respondent Benjamin Landa and
Respondent Bent Philipson provided affidavits to the DOH setting forth the following:
Under penalty of perjury, this affidavit is being submitted to confirm that I will
provide the needed equity for Cold Spring Realty Acquisition, LLC in excess of
my membership interest percentage of the LLC; and
I will provide the needed equity to Cold Spring Acquisition. I.LC, to the extent
required in the event that there is a need for these resources in support of the Cold
Spring Acquisition, LLC, pending CON 142146-E.
I understand that the New York State Department of Health will rely on the truth
ofthis affidavit when making a decision on the current application.
These affidavits were submitted to. DOH in January 2016 and the DOH provided contingent
approval on February 11, 2016 noting that "liquid resources may not be available in proportion to
ownership interest" and "[p]roposed realty members Bent Philipson (on behalf of Philipson Family
LLC) and Benjamin Landa have provided affidavits stating their willingness to contribute
resources disproportionate to their membership interest in the realty entity." (NYSCEF Doc. 533)
The Executive Summary further states that the approval was contingent on submission o!
an "executed real property loan commitment acceptable to DOI-1." CSI`l was also required to
provide executed copies of the working capital loan commitment, along with the commitment for
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purchase of the operations. Despite all of these representations, a "Subordinated Promissory Note"
in favor of "Lending Partners LLC" ' made up of the Philipson l arriili', 1,LC (Bent Philipson ).113I,
Management (Cheskel Berkowitz and Joel Zupnick), I,ifestar (David Lahler), and Benjamin Landa
was executed by Cold Spring Realty on June 1, 2016 with a maturity date of November 30, 2019.
(NYSCEF Doc. 32). By November of 2018, Cold Spring Realty refinanced the mortgage on the.
real property and folded the Promissory Note, with interest, into the new loan. Thereafter, the
payment became part of the debt service rent charged to CSH.
CSIP. s position that Cold Spring Realty, as a private entity, has the right to enter into any
loan agreement it deems appropriate is somewhat disingenuous when CSH ultimately is
responsible for the payment of the loan in accordance with the lease terms: As noted above, by
letter dated November 13, 2015, the DOH required, among other items; affidavits from each of the
members of Cold Spring Realty stating "he or she is willing to contribute resources
disproportionate to his or her membership interest in the operating entity including its working
capital. Please note the money should be interest free_" The :letter goes on to require, "individual.
affidavits (related to) contributed resources disproportionate to membership interest in the real.
property entity." (NYSCEF Doc. 29). As forth in detail in the Petition, in January of' 2016,..
Respondents Landa and B. Philipson affirmatively represented to the DOH during the. CON
process that they would .each invest additional capital to the purchase of the, real property as well
as the Facility.
The pass-through of the interest payment to CSH is evidenced by an email sent from Bent
Philipson on November 2: 2018, indicating that the Promissory Note payoff would ``include
interest." (NYSCEF Doe. 34), Further, Cold Spring Realty acknowledges that "DOH approved a
lease that included the payment of indefinite 'debt service' and taxes, it was clearly contemplated
that the rent could fluctuate depending on such factors as the principal and interest include in the.
mortgage payments, the cost of insurance on the property and the taxes." (NYSCEF Doc, 531 at.
24). The Cold Spring Realty Respondents argue that the use of a promissory note ensuring interest
to themselves was not specifically prohibited by the DOH and that upon refinancing, loan
payments went down due to beneficial loan terms even though -the total principal owed [Cold
Spring Realty] increased." [ad.).
Unlike the facts surrounding the Lease Agreement, -the facts related to the Promissory Note
demonstrate the misleading nature in which certain Respondents presented the anticipated
financing of the Facility to the DOH. The Executive Summary and CON documents set forth
representations made to the DOH concerning the purchase financing of the real property, Cold
Spring Realty represented that it would acquire the real property for $65,750,000 "funded by
$13,550,000 in members' equity and a loan for $54,200,000 at 6% interest rate fora 30-year term."
Equally telling are the various conditions to the PHHPC's February 11, 2016, approval of the
CON. These conditions include, "submission of executed loan commitment for purchase of
operations, executed working capital loan commitment, executed real property loan commitment"
all acceptable to the DOH.
Upon consideration of the facts and law, the court finds that the Executive Law § 63(12)
cause: of action has been established with respect to the undisclosed Promissory Note and that the.
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Respondents' raise no material facts in opposition. The appropriate remedy is restitution of the
interest amount of approximately $2 million to be made to CSI1 collectively by the members of
Lending Partners. (See State v Leasing Expenses Company, LLC. 199 AD3d 521 [1st Dept 20211:
see also State v. Northern Leasing Systerns, Inc., 169 AD3d 527 11 st Dept 20191 State v. Orbital
Publishing Group, Inc., 169 AD3d 564 11st Dept 20191). Such restitution to CSH shall be.
contributed, with the individual entity members being individually liable, as $503,889.00 each
from Philipson. Family, LLC,LBL Management, Lifestar, and Benjamin Landa for a total of
$2,015,556.00.
Third Cause of Action Pursuant to Executive Law 03(12)2
Alleged Violation of PHL § 2808(5)(c) and Additional. Regulations.
The Petition further alleges that Respondents have violated PHL §2808 (5)(c), which limits
equity withdrawals to three percent of the Facility's total prior year annual reported revenue. Any
equity withdrawal above three percent must be on notice to the I)011. According to the Petition.
from 2018 through 2020, Respondents transferred a total of $11 million in "cash flow rental" to
Cold Spring Realty in violation of the limit for asset transfers without receiving requisite approval
from the DOH. Together with transfers to other related parties for "management services,"
Petitioner alleges that statutory cap was exceeded by $3,930,389.18 for the period covering 2018 .
through 2020.
CSH argues that transfers of rent payments to Cold Spring Realty, which were approved
during the CON process, cannot be considered equity and nonetheless such payments are "for
facility purposes" which is an exception to the limit on equity withdrawals as set forth in the statute.
As determined by another Justice of this court, "it does not appear that the challenged recital
payments are subject to the three percent threshold addressed in Public Health Law § 2808(5)(c)."
(State v. Fulton Commons Care Center Inc., ei al., [Nassau County Supreme Court, Index
6176.87/2022] [Singer, J. August 16, 20231). To the contrary, the rental payments made pursuant
to the DOH approved lease agreement are, on their Face_ approved legitimate business expenses.
Next, CSI-l. argues that the payment. made to 1 Iighvic.w for -repayment of an interest tine
loan for litigation costs" is not an equity withdrawal. Further, without including the rental
payments made to Cold Spring Realty in the equity calculation, the total of those payments to
Highview in the amount of $563,438.23 and Rosewell in the amount of $260,000.02 during the
2018-2020 period do not exceed the three percent cap. On the whole, the court finds that with the
annual rent removed from the equation, the Petitioner has failed to establish that the remaining
expenses constituted unapproved equity withdrawals in violation of PHI, § 2808(5)(e).
The Petition further explains that annual cost reports pursuant to 10 NYCRR § 86-2.2
requires, in several places, disclosure of "related companies" or "Non-Arm's Length
2 The Fifth Cause of Action is based upon the same allegations but is brought pursuant to the
repeated and persistent illegality clauses of Executive 1 aw § .6 3(12):. Both.. causes of action are
treated together here.
10.
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Arrangements," defined as "[a]n arrangement between the operator of á facility and an
organization related to the operator by common o nership and or control for the litrnishing of
sen-ices, facilities, or supplies .:.." Additional regulations require extensive disclosure arid
reporting. The Petitioner alleges that Avi Philipson, as lthe signatory on these reports, failed to
fully disclose related companies and non-arm's length transactions, including transactions with
Highview, the Graph Entities, Comprehensive, and Prudent Consulting and failed to submit
financial statements in connection with such parties. Similarly,. Petitioner asserts that CSH.
submitted false claims to Medicaid for reimbursement based upon the alleged unacceptable
practices, including failing to provide required resident care, free from abuse and neglect,
operating the nursing home with insufficient staff, and converting public fluids.
In response, CSH points Out that If ighvicw and the Graph Entities were disclosed as related
parties in the notes section .of the cost. reports . and non-party Prudent Consulting was listed as
related to the facility operator in that portion related to Schedule of Fees and Contracted Services.
Concerning Comprehensive, which was not disclosed as a related party, CSII explains that.
RespondentLahler is not 'affiliated" with Comprehensive and even if there was such an affiliation,
it need not be disclosed on a cost report. CSH points out that related entity disclosures relate
strictly to the Facility operator and not the real property owner entity.
Further, CSFI argues that riot Only must the Petitioner establish that the DOH would have
done something differently :if the cost reports were completely accurate but also that the
inaccuracies :in some way affected the amount of Medicaid payments received by CSH. Also,
CSII's current Medicaid reimbursement rate is determined using the Facility's 2007 costs. The
2017-2021 Cost Reports are not factored into the reimbursement rate.
On this record, the court finds that the Attorney General has failed to adequately allege that
Comprehensive is a related party to CSH. The remaining related parties were disclosed on the
reports. Accordingly, the court finds that`the Attorney' General has failed to establish by admissible
evidence non-compliance With the diselostire and payment regulations.
Fourth Cause of Action pursuant to Executive Law § 63 (1.2)
Repeated and Persistent Illegality in the Care: of Residents
The Attorney General alleges that Respondents violated the law by cutting staffing levels
leading to neglect Of certain residents. Those statutes that Respondents have allegedly violated.
with respect to inadequate staffing include 42 CFR § 483.35 (requiring sufficient staff to assure
resident safety); 42 CFR § 483.60 (requiring sufficient staff for food and nutrition :services): 10
NYCRR § 415.13: (requiring sufficient staff to provide nursing and related services to attain or.
maintain the highest practicable physical, mental and psychesocial well-being of each resident);10
NYCRR § 415:13(a) (requiring Sufficient personnel on :a 24 hour basis to. provide nursing Bare to
all residents); 10 NYCRR § 415.14 '(requiring sufficient competent staff to Garry out functions of
dietary services), among others.
The. Petition includes accounts of lack in care for certain residents related to failures to bathe
residents on a regular basis and: leaving certain residents unattended for lengthy periods of :time.
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These allegations are further discussed in the affidavit of Medical Analyst Mary Conway, R.N.
along with a detailed explanation of the legal requirements of nursing homes as they pertain to
care of residents. Nurse Conway's affidavit provides examples of inadequate care at CSH based
on her expert review of various medical records. Examples of inadequate care include leaving
certain residents unattended for extended periods of time (Resident 47) along with failing to bathe
or shower certain residents as set forth in their respective care plans and in some instances not for
several weeks at a time (LK, JD, MW).
Also included with the Petition are various affidavits from family members of CSH
residents, outlining specific examples of lack of care. Incidents include, development and
worsening of decubitus ulcers, urinary tract infections likely caused by delay in diaper changing.
grossly inadequate basic hygiene practices, and improper dental care. Respondents do not dispute
the factual accounts set forth in these submissions but rather contest their admissibility. The court
considers these affidavits in accordance with CFLR 3212. (Hon. Mark C. Dillon, McKinney
Practice Commentary 3212:21 ["Summary judgment motions must he supported by an affidavit. .
... Affidavits, by nature and definition, contain information from a person with direct knowledge
of the subject matter discussed within the four corners of the document."1). Also included are.
various unfavorable online reviews of the Facility. These reviews are not considered by the court
as they are unsworn out of court statements.
CSH urges the court to see the larger picture in terms of resident care. The number of
residents that were cared for at the Facility during the period of 2017 through 2021 were over
5,000. The Petition sets forth alleged inadequate care of some 9 residents after the Attorney
General obtained records concerning 227 residents during its investigation. According to CSH,
this small group of residents who were not properly cared for at the Facility does not adequately
allege a violation of the PHL and governing regulations as it is not a statistically significantly
sampling. Instead, CSHI posits that the court should consider these instances of substandard care
as an exception to the rule.
CSI-1 further justifies the Fac
Preview
FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 NYSCEF DOC. NO. 868 RECEIVED NYSCEF: 03/20/2024 EXHIBIT A FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. LISA A. CAIRO, J.S.C. X TRIAL/IAS PART 25 PEOPLE OF THE STATE OF NEW YORK by LETITIA JAMES, ATTORNEY GENERAL OF TIIE DECISION AND ORDER STATE OF NEW YORK, ON PETITION Petitioner, INDEX No. 617709/2022 -against- Motion Seq. Nos. 001, 021 COLD SPRING ACQUISITION, LLC D/B/A COLD SPRING HILLS CENTER FOR NURSING & REHABILITATION, COLD SPRING REALTY ACQUISITION, LLC, VENTURA SERVICES, I.LC D/B/A PHILOSOPHY CARE CENTERS, GRAPH MGA, LLC, GRAPH MANAGEMENT, LLC, GRAPH INSURANCE COMPANY A RISK RETENTION GROUP, LLC, HIGIIVIEW 1VIANAGEMFNT INC, COMPREHENSIVE CARE SOLUTIONS, LLC, PHILIPSON FAMILY, LLC, LIFESTAR FAMILY HOLDINGS, LLC, ROSS CSH HOLDINGS, LLC, ROSEWELL ASSOCIATES, LLC, B&L CONSULTING; LLC, ZBL MANAGEMENT, LLC BENT PHILIPSON, AVI PHILIPSON, ESTATE OF DEBORAH PHILIPSON, JOEL LEIFER, LEAH FRIEDMAN, ROCHEL DAVID, ESTHER FARKOVITS, BENJAMIN LANDA, DAVID ZAIILER, CIIAYA ZAIIL ER, CIIAIM. ZAIILER, JACOB ZAIILER, CHESKEL BERKOWITZ, and .TOFL LUPNICK, Respondents. The following papers were read on this motion DOCS NUMI3EREl7 Petition, Affidavits, Affirmations, Exhibits; Memos 1-114, 682 Answers and Opposition Papers 502-513, 514-529, 530-535, 536-550, 551-557, 558-566, 567-575, 576-587, 588-597, 59$=605, 1 1 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 614, 606-612, 633- (48, 777-783 Reply Papers. 736-739 (MS 21) Notice of Motion, Affidavits, Affirmations, Exhibits. Memos.. . 61.3, 615 -632 Opposition Papers 736-739 The Attorney General of the State of New York on behalf of the State commenced this special proceeding pursuant to New York Executive Law § 63(12) by verified Petition on December 16, 2022, against Cold Spring Acquisition, LLC d/b/a Cold Spring Hills Center for Nursing & Rehabilitation (CSH) and Cold Spring Hills Realty Acquisition LLC (Cold Spring Realty), as well as their respective owners and allegedly related parties and entities (MS #1). Respondents' motions to dismiss were largely denied by Decision and Order dated June 26, 2023. Answers and oppositions to the Petition were filed and oral argument was taken on the Petition on December 4 through 8, 2023. Respondents Joel Leifer and Rosewell Associates l_LC have separately moved for summary determination on the pleadings (MS #21). BACKGROUND In 2014, Respondent CSI- submitted a Certificate of Need ("CON") application to the. Department of Health ("DOH") requesting approval to purchase and operate an existing residential health care facility located in Woodbury, New. York (the "Facility"). As part of this application process, CSH was required to provide information about the proposed owners and operators of the Facility; The information provided included disclosure of the related party entities, specifically familial relationships among members of CSH and Cold Spring Realty, the proposed purchaser of the real property upon which the Facility is located. In response to the CON, the DOH prepared an Executive Summary dated February 11, 2016, recommending contingent approval of the CON. The Executive Summary refers to the relationship between CSH and. Cold Spring Realty, "in that the entities have several members in corninon." The Executive Summary also includes a list of. other nursing home facilities that members of both CSI-1 and. Cold Spring Realty were involved in at the time the CON was submitted. Managing members of' CS' I both at the time the CON was approved and presently are Joel Leifer and Avi Philipson, who is the son of long-time nursing home operator Bent Philipson. Avi Philipson was a student living in Israel with no prior work experience when the CON was submitted and maintained an ownership interest in one other New York nursing home facility. Other members of CSH are the Estate of Deborah Philipson, Esther Farkovits (daughter of Benjamin Landa), Rochelle David (daughter of David Zahler), and Leah Friedman (daughter of David Zahler). The members of Cold Spring Realty . are the Philipson Family LLC, Benjamin Landa, Lifestar Family Holdings (owned by members of the Zahler Family), and Cheskel Berkowitz. According to the Executive Summary, Ms. Farkovits was unemployed and living overseas at the time the CON was submitted. She maintained an ownership interest in nine other nursing 2 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 home facilities under the jurisdiction of the Department of I Iealth. Both Roehel David and Leah Friedman represented over two decades of employment in human resources at Confidence. Management Systems ("Confidence") when the CON was submitted. although later deposition testimony discredited those statements. Specifically, David testified during her June 2022 investigatory deposition that she had not worked at Confidence since about 2004, making her length of employment 13 years rather than the 25 years she sets forth in the CON. Similarly, Friedman testified at her deposition that she had not worked at Confidence since 2004 or 2005 while stating in the. CON that she was employed by Confidence in 2016. Neither Friedman or David explain these discrepancies in their respective affirmations in opposition to the Petition (NYSCEF Does. 527 and 528). At the time the CON was submitted, however, both David and Friedman had ownership interests in three other nursing home facilities. The Attorney General asks the court to find that CSI-I's CON application presented a misleading picture to the DOH. However, the CON application. in many regards, sets forth accurate and complete information concerning the members of CS and Cold Spring Realty along with the proposed ownership structure of the Fad lity and the real property. Respondents argue that the Attorney General is not satisfied with certain requirements of private nursing homes in New York. Rather than address these concerns with the. Legislature, which Respondents argue would be the proper mechanism, the Attorney General is looking for the court to make a ruling that will in effect drastically change the way private nursing homes are approved and regulated throughout the State, 'I'lte allegations in the. Petition primarily concern (1) an alleged fraudulent Lease. Agreement between CSH and Cold Spring Realty, (2) an alleged fraudulent Promissory Note executed by Cold Spring Realty in favor of Lending Partners, an alleged corporate alter ego of Cold Spring Realty, and (3) various payments made by CSH to other named Respondents as related entities, all resulting in a lack of care for residents at the Facility caused by Respondents' misuse of Facility funds. The Petitioner argues that the various Respondents put personal greed above resident care. The court is now faced with determining whether this alleged personal greed constitutes a violation. of Executive. Law § 63(12). As set forth herein, based upon the underlying Petition, together with all Respondents' Answers, the parties' various Affidavits, .I sxhibits. and Memoranda of. Law and the weeklong oral argument held before the Court, the Attorney General has properly plead and proven certain. but not all, of the Causes of Action in the Petition. DISCUSSION Pursuant to NY Executive Law § 63(12), the Attorney General is permitted to bring a special. proceeding against. a respondent seeking injunctive relief, restitution, and damages. .A special proceeding is determined by the court using the same criteria applied to a motion for summary judgement. (State v. Northern Leasing Sys., 193 AD3d 67, 73 [1st. Dept 2 021 1; State v. Telehublink Corp., 301 AD2d 1006; 1007. [3d Dept 20031 ['`A special proceeding is governed by 3 3 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 the same standards that apply to a motion for summary judgment.'. ] 1 ). The Attorney General must. establish that there is no issue of fact as to its allegations, and thereafter the burden shills to the Respondent who may demonstrate the existence of issues of fact requiring a trial. (CPI.R 409(d); See Telehublink, 301AD2d at 1007). Should the Petitioner fail to meet its prima facie burden, the court need not even consider Respondents' arguments in opposition. Executive. Law § 63 (12) Executive Law § 63(12) provides in relevant part:. -Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the State of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts land I directing restitution and damages ... and the court may award the relief applied for or so much thereof as it may deem proper." As discussed in the court's prior orders, this provision is a function of the State's ability to regulate "businesses within its borders in the interest of securing an honest marketplace." (State v. Coventry First LLC, 52 AD3d 345 [1st Dept 2008]). "A special proceeding, as authorized by Executive Law § 63(12) is intended as an expeditious means for the Attorney-General to prevent further injury and seek relief for the victim of business fraud." (State v. Apple Health & Sports Clubs, 206 AD2d 266, 268 [1st Dept 1994]). Continuing acts need not be alleged provided they were "repeated" in nature and fall within the statute of limitations. (Executive Law § 63 (12)). "Fraud" is broadly defined by the statute as "any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions." (Executive I .,aw § 63(12)), This definition goes beyond common law fraud and the specific elements of a common-law fraud claim need not be asserted under an Executive Law § 63 (12) cause of action. (State ti. Trump Entrepreneur Initiative, LL C,, 137 AD3d 409, 416-417 [1st Dept 2016] [citing Coventry Fit st, 52 AD3d at 3460. Rather, the question under the Executive. Law is. "whether the targeted act has the capacity or tendency to . deceive or creates an atmosphere conducive of fraud." (Northern Leasing Sys, 193 AD3 d at 75 [quotations omitted1). Thus, § 63 (12) "defines the fraudulent conduct that it prohibits, authorizes the Attorney General to commence an action or proceeding to foreclose that conduct, and speci ties the relief, including equitable relief,. that the Attorney General may seek." (Ti ump Entrepreneur Initiative, 137 AD3d at 417). 1 Cases formally. captioned The People of the State of New York by [Attorney General) v. Respondent are . abbreviated throughout this decision as State v. Respondent. 4 4 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 As explained above, the allegations set forth in the Petition all relate to the Attorney General's overarching argument that from 2016 through 2021, . CrySII transferred $42.4 million dollars to Cold Spring Realty and other associated parties. From this amount, the Attorney General. alleges that $22.6 million was illegally converted rather than being properly 'used for resident care. Instead, Respondents participated in the three above-identified fraudulent schemes resulting in personal profit. The Petition asserts seven causes of action as follows: The First Cause of Action is asserted pursuant to the repeated and persistent fraud clauses of Executive Law § 63(12) related to "services purportedly rendered by [CSH] that did not. conform with applicable laws and regulation, including refraining from engaging in unacceptable practices in violation of 18 NYCRR § 515.2." The Second Cause of Action is asserted pursuant to the repeated and persistent fraud clauses of Executive Law § 63 (12) related to real property transactions, including binding CSH to an exorbitant lease agreement and binding Cold Spring Realty to a $16 million promissory note subject to 13% interest. - The. Third Cause of Action is asserted pursuant to the repeated and persistent fraud clauses. of Executive Law § 63(12) related to "withdrawals and transfers from [CSI I] in cxcess o f the disclosure thresholds as set forth in PIII., § 2808(5)(c)," ' [p]reparing, filing, and/or causing to be filed with DOH false annual financial and statistical reports that failed to properly disclosure related parties and submit required financial statements, pursuant to 10 NYCRR : § 86-2.2," and. aria filing,and/or causing to by filed with DO11 false and/or misleading documents. "[p]reparing, concerning an application for a CON, on behalf of [CSII]°` as well as false and misleading annual billing certifications. The Fourth Cause of Action is asserted pursuant to the repeated and persistent illegality clauses of Executive Law § 63 (12) related to alleged failures to comply with legal. obligations to provide residents the care required under specified New York. and Federal nursing home regulations. - The Fifth Cause of Action is asserted pursuant to the repeated and persistent. illegality clause of Executive Law § 63(12) related to violation of controlling statutes and regulations governing resident care and the collection of Medicare funds. The. Sixth Cause of Action is asserted pursuant to Executive Law § 63-c for the alleged misappropriation of funds derived from the Medicaid and Medicare Programs. - The Seventh Cause of Action is asserted pursuant to the common law doctrine of unjust enrichment for "funds unlawfully received from the Medicaid and. Medicare Programs:" First Cause of Action Pursuant to Executive Law x.63 (12) Petitioner claims that all Respondents other than Graph MOA, LLC, Graph Management, LLC, Graph Insurance Company A Risk Retention Group (collectively the "Graph Respondents" or "Graph Entities") and Comprehensive Care Solutions, 1,1.,C ("Comprehensive"), were responsible for the conversion of millions in Medicaid and Medicate funds received by CS11. As 5 5 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 stated herein, the Attorney General claims that these funds were paid to the Respondents for services that were not performed ratifier than being used for resident care and adequate staffing. The Petitioner also argues that the Respondents mislead the D011 during the CON process regarding the true managing parties, the experience of those taking an ownership interest in the Facility, and the operations of the Facility. However, the Petitioner's repeated arguments concerning a lack of experience in nursing home administration by various members of CSH is somewhat perplexing given the DOH's approval of these individuals involvement after a two-year application process and additional approval of their ownership of other facilities. In fact, Respondent Farkovits was involved in six of the other CON applications that were contingently approved by the Public Health and Health Planning Council (PHIIPC) when the underlying CON was contingently approved at the January 28, 2016. meeting. Respondem Avi Philipson was involved in two other contingently approved CON' s. As noted above. both David and Friedman had been approved owners of three other nursing home facilities at the time that the subject CON was contingently approved. The court finds no fraud in this regard. With regard to management agreements, the court notes that although during the initial CON application process, it was presented that "there will be no consulting and administrative. services agreements with SentosaCare or any other entity contemplated for the facility after transfer of ownership" (NYSCEF Doc. 533, Feb. 11, 2016 Executive Summary at 8), by November 19, 2016, the DOH had approved the addition of Cold Spring Hills Center for Nursing and Rehabilitation to the agreement to provide consulting services by SeritosaCare (NYSCEF Doe. 300). The court does not perceive that material information concerning management of the Facility was withheld from the DOEI such that the Respondents' actions constituted a "repeated and persistent fraud. Further, each of the alleged related entities to have done business with CSf I asserts that the amounts paid were reasonable payment for value received. Although the Petition together with the accompanying affidavits go into great detail about the amounts transferred to each related party, the Attorney General offers nothing more than speculation about whether the payments exceeded fair value. By contrast, the Respondents each present affidavits detailing the payments and the goods and services provided. In reply, the Attorney General fails to offer any specific. valuations or evidence establishing overpayment for particular services. The fact that the payments were made does not establish that they were in excess of the value received. As it is, in the-first instance, the Attorney General's burden to establish a prima facie case, the court finds that Petitioner has failed- to make a prima facie showing under the first cause of action. Second Cause of Action Pursuant to Executive Law §63(12) Petitioner claims that all Respondents other than Ventura Services. LLC d/b/a Philosophy Care Center ("Ventura"), Graph Respondents, Comprehensive and Roscwell Associates 1_LC ("Rosewell"), violated Executive Law §63(12) by entering into the Lease Agreement and Promissory Note. Additionally. it is alleged that. the Respondents engaged in unacceptable practices in violation of 18 NYCRR § 515.2. 6 6 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 The Lease Agreement One of the primary fraudulent schemes asserted by the Attorney General relates to the Lease Agreement between Cold Spring Realty and CSII. The Petition alleges that CSH was charged exorbitant rent by Cóld Spring Realty and CSII paid over $15 million to the owners of Cold Spring Realty between 2016 and 2021, exclusive of the $33 million debt service payments. However, the DOH Executive Summary acknowledges that a draft lease was submitted setting forth a 30-year term with annual rent equal to the sum of the Cold Spring Realty's debt. service on the real property mortgage (assessed at. $3,899,477 for year one) plus $4 million. The first year's rent was disclosed as $7,899,477 or $658,290 per month. The Executive Summary further references an affidavit submitted on behalf of CSH acknowledging that the landlord and tenant entities include several members in common. The DOH contingently approved the CON. with this disclosed lease information. Cold Spring Realty argues that the familial relationships among members of Realty and. CSH were disclosed to DOH. Realty points out that the Attorney Genera] has failed to advance evidence. establishing that the lease payments were excessive, only that they were in the top 25% for the region. Thus, Realty argues that the Lease Agreement, approved by DOH, does not establish any claim under Executive Law § 63(12) in that there is no repeated fraudulent acts or illegality. In support of its argument, Cold Spring Realty submits the affidavit of Helena Bernstein, Chief Financial Officer of Respondent Ventura, who provides information concerning the actual lease payments made by CSII to Realty for the period of 2016-2023. According to Ms. Bernstein, detailed information about the annual lease payments was also disclosed in the required annual reports prepared on behalf of CSH and submitted to DOH. The annual reports submitted between 2017 and 2022 indicate that the "anticipated future annual rental payments" were between $6.7 million dollars and $9.9 million dollars (the 2017 report reflects $9.9 million; 2018 report reflects $8.8 million; 2019 reflects $8.8 million; 2020 reflects $6.7 million and 2021 reflects $6.7 million). For its part, CSII argues that the I7t]II approved the Lease. Agreement with indefinite debt service built in as a portion of the rent. Further, CSII explains that a non-arms-length lease is common in the nursing home industry as evidenced by eleven of the fourteen other CON applications presented to DOH when CSII's application was considered by the PHHPC on January 28, 2016. Upon a review of the record, it is apparent that the DOH regularly entertained and approved :CON'.s involving landlord entities and operator entities comprised of common or related owners. The court finds that the Petitioner has failed to adequately establish by competent proof that the Lease Agreement is a product of fraud. As detailed herein, the Lease Agreement was provided to the DOH as part of CSH's CON application. The Executive Summary, prepared by the DOH, explicitly references the financial terms of the Lease Agreement and the existence of related parties among the landlord, Cold Spring Realty, and the tenant, CSII. The fact that the landlord may have had control of the lease negotiations does not negate the DOH's approval of the Lease Agreement. CSH's decisions related to the Lease Agreement are not for the court's 7 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 determination given the ;DOT-I's approval. To that end, Petitioner has failed to set forth in what ways the approved Lease Agreement establishes a fraud. The terms of the Lease Agreement, as provided to the DOH and thereafter approved, is not a ``fraud but rather a real estate transaction between disclosed related parties. Indeed, the Executive Summary prepared by DOH states in part, "Cold Spring Realty Acquisition, LLC as landlord, and Cold Spring Acquisition, LLC, as tenant, have entered into a proposed lease agreement for site control of the facility. There is a relationship between Cold Spring Realty Acquisition, LLC and Cold Spring Acquisition, LLC that is being acknowledged in this application, in that the individuals have ownership interests in both the operating entity and the real estate entity." 'the court again notes that it is undisputed that it is not unusual for the DOl-1 to approve CON's involving real property owned by entities that are related to the proposed nursing facility operator entity. The Promissory Note to Lending Partners The alleged fraudulent scheme under the Second Cause of Action concerns.. a Promissory Note wherein Lending Partners, an alleged corporate alter ego of Cold. Spring. Realty, loaned Cold Spring Realty $16 million at 13% interest. `the crux of the argument in this regard is that CSI I's CON. application .referred to the real property purchase being satisfied with $13.5 million of Cold Spring Realty member equity and a $54 million dollar loan with a 30-year term at 6% interest, with any shortfall to be made up by additional member equity. in November of 2015, the DOH advised Andrew Blatt on behalf of CSH that disproportionate equity provided to both the operating entity and real property entity "should be provided interest free." (NYSCEIF Doc. 29). In connection with the promise of equity contributions, both Respondent Benjamin Landa and Respondent Bent Philipson provided affidavits to the DOH setting forth the following: Under penalty of perjury, this affidavit is being submitted to confirm that I will provide the needed equity for Cold Spring Realty Acquisition, LLC in excess of my membership interest percentage of the LLC; and I will provide the needed equity to Cold Spring Acquisition. I.LC, to the extent required in the event that there is a need for these resources in support of the Cold Spring Acquisition, LLC, pending CON 142146-E. I understand that the New York State Department of Health will rely on the truth ofthis affidavit when making a decision on the current application. These affidavits were submitted to. DOH in January 2016 and the DOH provided contingent approval on February 11, 2016 noting that "liquid resources may not be available in proportion to ownership interest" and "[p]roposed realty members Bent Philipson (on behalf of Philipson Family LLC) and Benjamin Landa have provided affidavits stating their willingness to contribute resources disproportionate to their membership interest in the realty entity." (NYSCEF Doc. 533) The Executive Summary further states that the approval was contingent on submission o! an "executed real property loan commitment acceptable to DOI-1." CSI`l was also required to provide executed copies of the working capital loan commitment, along with the commitment for FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 purchase of the operations. Despite all of these representations, a "Subordinated Promissory Note" in favor of "Lending Partners LLC" ' made up of the Philipson l arriili', 1,LC (Bent Philipson ).113I, Management (Cheskel Berkowitz and Joel Zupnick), I,ifestar (David Lahler), and Benjamin Landa was executed by Cold Spring Realty on June 1, 2016 with a maturity date of November 30, 2019. (NYSCEF Doc. 32). By November of 2018, Cold Spring Realty refinanced the mortgage on the. real property and folded the Promissory Note, with interest, into the new loan. Thereafter, the payment became part of the debt service rent charged to CSH. CSIP. s position that Cold Spring Realty, as a private entity, has the right to enter into any loan agreement it deems appropriate is somewhat disingenuous when CSH ultimately is responsible for the payment of the loan in accordance with the lease terms: As noted above, by letter dated November 13, 2015, the DOH required, among other items; affidavits from each of the members of Cold Spring Realty stating "he or she is willing to contribute resources disproportionate to his or her membership interest in the operating entity including its working capital. Please note the money should be interest free_" The :letter goes on to require, "individual. affidavits (related to) contributed resources disproportionate to membership interest in the real. property entity." (NYSCEF Doc. 29). As forth in detail in the Petition, in January of' 2016,.. Respondents Landa and B. Philipson affirmatively represented to the DOH during the. CON process that they would .each invest additional capital to the purchase of the, real property as well as the Facility. The pass-through of the interest payment to CSH is evidenced by an email sent from Bent Philipson on November 2: 2018, indicating that the Promissory Note payoff would ``include interest." (NYSCEF Doe. 34), Further, Cold Spring Realty acknowledges that "DOH approved a lease that included the payment of indefinite 'debt service' and taxes, it was clearly contemplated that the rent could fluctuate depending on such factors as the principal and interest include in the. mortgage payments, the cost of insurance on the property and the taxes." (NYSCEF Doc, 531 at. 24). The Cold Spring Realty Respondents argue that the use of a promissory note ensuring interest to themselves was not specifically prohibited by the DOH and that upon refinancing, loan payments went down due to beneficial loan terms even though -the total principal owed [Cold Spring Realty] increased." [ad.). Unlike the facts surrounding the Lease Agreement, -the facts related to the Promissory Note demonstrate the misleading nature in which certain Respondents presented the anticipated financing of the Facility to the DOH. The Executive Summary and CON documents set forth representations made to the DOH concerning the purchase financing of the real property, Cold Spring Realty represented that it would acquire the real property for $65,750,000 "funded by $13,550,000 in members' equity and a loan for $54,200,000 at 6% interest rate fora 30-year term." Equally telling are the various conditions to the PHHPC's February 11, 2016, approval of the CON. These conditions include, "submission of executed loan commitment for purchase of operations, executed working capital loan commitment, executed real property loan commitment" all acceptable to the DOH. Upon consideration of the facts and law, the court finds that the Executive Law § 63(12) cause: of action has been established with respect to the undisclosed Promissory Note and that the. FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 Respondents' raise no material facts in opposition. The appropriate remedy is restitution of the interest amount of approximately $2 million to be made to CSI1 collectively by the members of Lending Partners. (See State v Leasing Expenses Company, LLC. 199 AD3d 521 [1st Dept 20211: see also State v. Northern Leasing Systerns, Inc., 169 AD3d 527 11 st Dept 20191 State v. Orbital Publishing Group, Inc., 169 AD3d 564 11st Dept 20191). Such restitution to CSH shall be. contributed, with the individual entity members being individually liable, as $503,889.00 each from Philipson. Family, LLC,LBL Management, Lifestar, and Benjamin Landa for a total of $2,015,556.00. Third Cause of Action Pursuant to Executive Law 03(12)2 Alleged Violation of PHL § 2808(5)(c) and Additional. Regulations. The Petition further alleges that Respondents have violated PHL §2808 (5)(c), which limits equity withdrawals to three percent of the Facility's total prior year annual reported revenue. Any equity withdrawal above three percent must be on notice to the I)011. According to the Petition. from 2018 through 2020, Respondents transferred a total of $11 million in "cash flow rental" to Cold Spring Realty in violation of the limit for asset transfers without receiving requisite approval from the DOH. Together with transfers to other related parties for "management services," Petitioner alleges that statutory cap was exceeded by $3,930,389.18 for the period covering 2018 . through 2020. CSH argues that transfers of rent payments to Cold Spring Realty, which were approved during the CON process, cannot be considered equity and nonetheless such payments are "for facility purposes" which is an exception to the limit on equity withdrawals as set forth in the statute. As determined by another Justice of this court, "it does not appear that the challenged recital payments are subject to the three percent threshold addressed in Public Health Law § 2808(5)(c)." (State v. Fulton Commons Care Center Inc., ei al., [Nassau County Supreme Court, Index 6176.87/2022] [Singer, J. August 16, 20231). To the contrary, the rental payments made pursuant to the DOH approved lease agreement are, on their Face_ approved legitimate business expenses. Next, CSI-l. argues that the payment. made to 1 Iighvic.w for -repayment of an interest tine loan for litigation costs" is not an equity withdrawal. Further, without including the rental payments made to Cold Spring Realty in the equity calculation, the total of those payments to Highview in the amount of $563,438.23 and Rosewell in the amount of $260,000.02 during the 2018-2020 period do not exceed the three percent cap. On the whole, the court finds that with the annual rent removed from the equation, the Petitioner has failed to establish that the remaining expenses constituted unapproved equity withdrawals in violation of PHI, § 2808(5)(e). The Petition further explains that annual cost reports pursuant to 10 NYCRR § 86-2.2 requires, in several places, disclosure of "related companies" or "Non-Arm's Length 2 The Fifth Cause of Action is based upon the same allegations but is brought pursuant to the repeated and persistent illegality clauses of Executive 1 aw § .6 3(12):. Both.. causes of action are treated together here. 10. 10 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 Arrangements," defined as "[a]n arrangement between the operator of á facility and an organization related to the operator by common o nership and or control for the litrnishing of sen-ices, facilities, or supplies .:.." Additional regulations require extensive disclosure arid reporting. The Petitioner alleges that Avi Philipson, as lthe signatory on these reports, failed to fully disclose related companies and non-arm's length transactions, including transactions with Highview, the Graph Entities, Comprehensive, and Prudent Consulting and failed to submit financial statements in connection with such parties. Similarly,. Petitioner asserts that CSH. submitted false claims to Medicaid for reimbursement based upon the alleged unacceptable practices, including failing to provide required resident care, free from abuse and neglect, operating the nursing home with insufficient staff, and converting public fluids. In response, CSH points Out that If ighvicw and the Graph Entities were disclosed as related parties in the notes section .of the cost. reports . and non-party Prudent Consulting was listed as related to the facility operator in that portion related to Schedule of Fees and Contracted Services. Concerning Comprehensive, which was not disclosed as a related party, CSII explains that. RespondentLahler is not 'affiliated" with Comprehensive and even if there was such an affiliation, it need not be disclosed on a cost report. CSH points out that related entity disclosures relate strictly to the Facility operator and not the real property owner entity. Further, CSFI argues that riot Only must the Petitioner establish that the DOH would have done something differently :if the cost reports were completely accurate but also that the inaccuracies :in some way affected the amount of Medicaid payments received by CSH. Also, CSII's current Medicaid reimbursement rate is determined using the Facility's 2007 costs. The 2017-2021 Cost Reports are not factored into the reimbursement rate. On this record, the court finds that the Attorney General has failed to adequately allege that Comprehensive is a related party to CSH. The remaining related parties were disclosed on the reports. Accordingly, the court finds that`the Attorney' General has failed to establish by admissible evidence non-compliance With the diselostire and payment regulations. Fourth Cause of Action pursuant to Executive Law § 63 (1.2) Repeated and Persistent Illegality in the Care: of Residents The Attorney General alleges that Respondents violated the law by cutting staffing levels leading to neglect Of certain residents. Those statutes that Respondents have allegedly violated. with respect to inadequate staffing include 42 CFR § 483.35 (requiring sufficient staff to assure resident safety); 42 CFR § 483.60 (requiring sufficient staff for food and nutrition :services): 10 NYCRR § 415.13: (requiring sufficient staff to provide nursing and related services to attain or. maintain the highest practicable physical, mental and psychesocial well-being of each resident);10 NYCRR § 415:13(a) (requiring Sufficient personnel on :a 24 hour basis to. provide nursing Bare to all residents); 10 NYCRR § 415.14 '(requiring sufficient competent staff to Garry out functions of dietary services), among others. The. Petition includes accounts of lack in care for certain residents related to failures to bathe residents on a regular basis and: leaving certain residents unattended for lengthy periods of :time. 11 11 of 15 FILED: NEW YORK COUNTY CLERK 03/20/2024 01:18 PM INDEX NO. 451549/2023 617709/2022 NYSCEF DOC. NO. 868 802 RECEIVED NYSCEF: 03/15/2024 03/20/2024 These allegations are further discussed in the affidavit of Medical Analyst Mary Conway, R.N. along with a detailed explanation of the legal requirements of nursing homes as they pertain to care of residents. Nurse Conway's affidavit provides examples of inadequate care at CSH based on her expert review of various medical records. Examples of inadequate care include leaving certain residents unattended for extended periods of time (Resident 47) along with failing to bathe or shower certain residents as set forth in their respective care plans and in some instances not for several weeks at a time (LK, JD, MW). Also included with the Petition are various affidavits from family members of CSH residents, outlining specific examples of lack of care. Incidents include, development and worsening of decubitus ulcers, urinary tract infections likely caused by delay in diaper changing. grossly inadequate basic hygiene practices, and improper dental care. Respondents do not dispute the factual accounts set forth in these submissions but rather contest their admissibility. The court considers these affidavits in accordance with CFLR 3212. (Hon. Mark C. Dillon, McKinney Practice Commentary 3212:21 ["Summary judgment motions must he supported by an affidavit. . ... Affidavits, by nature and definition, contain information from a person with direct knowledge of the subject matter discussed within the four corners of the document."1). Also included are. various unfavorable online reviews of the Facility. These reviews are not considered by the court as they are unsworn out of court statements. CSH urges the court to see the larger picture in terms of resident care. The number of residents that were cared for at the Facility during the period of 2017 through 2021 were over 5,000. The Petition sets forth alleged inadequate care of some 9 residents after the Attorney General obtained records concerning 227 residents during its investigation. According to CSH, this small group of residents who were not properly cared for at the Facility does not adequately allege a violation of the PHL and governing regulations as it is not a statistically significantly sampling. Instead, CSHI posits that the court should consider these instances of substandard care as an exception to the rule. CSI-1 further justifies the Fac